Monday, December 20, 2010

America's Childlike Desire to Avoid Making Trade-Offs

The U.S. is childlike: we refuse to make trade-offs, as these require analysis, judgment, sacrifice and maturity.

The key characteristic of adulthood is the ability to make trade-offs. The child and the adolescent want everything that they want, now, and they soon learn (at least in America) that whining, cajoling, bargaining and guilt-tripping will get them what they want without having to make difficult choices between less-than-perfect options.

America has not yet grown up because it refuses to make any adult trade-offs that require sacrificing one desire to bring another desire within reach, or matching reality with competing demands. Energy offers a cogent example.

When I posted a rather measured report on natural gas ( The (Relatively) Good News About Natural Gas), I was accused of being a "shill" for the natural gas industry, and many readers sent me links to the documentary Gasland.

I understand there are serious environmental issues in fraccing, which the report I published noted. (I wrote about these concerns for AOL Daily Finance over a year ago:Natural gas boom not all it's fracced up to be, and I was excoriated by industry insiders as a result.)

I am not an expert in fraccing, but it seems fairly evident that if the drilling is performed properly and carefully, then the water table could be protected from contamination.

Should fraccing be exempt from environmental laws? No. Clearly, any private enterprise which has the potential to damage or destroy "the commons" of our soil, air and water needs to be tightly regulated and inspected. That is the proper role of government--protecting the commons and the citizenry via common-sense regulation and rigorous inspections.

But let's follow the notion that the potential environmental hazards of fraccing mean it should be banned.

To be consistent, then we should also ban other energy extraction activities which are potentially hazardous/destructive to the environment:

1. no fraccing for natural gas.

2. no drilling for oil or natural gas offshore (see Gulf Disaster).

3. no nuclear plants (waste is only stored, remains a hazard for decades/centuries).

4. no hydroelectric dams (dams destroy the rivers and wildlife).

5. no wind turbines (visual pollution, kills birds).

6. no geothermal energy wells (they can trigger earthquakes).

7. no shipping via freighters which burn bunker fuel (trans-Pacific shipping creates 40% of the air pollution in the Pacific Basin).

8. no coal-mining or burning coal (massive degradation from open-pit mines, danger to miners in deep-tunnel mines, mountains of toxic tailings and waste, acid-rain and air pollution).

9. no tar sands or shale oil mining (massive stripping of the land, moonscapes, huge use of water, pollution of water and air from "dirty" oil produced).

10. no more subsidized solar energy plants (they don't pencil out without subsidies and make no sense in the northern half of the nation).

Each of these objections are based on valid points. Many residents and environmentalists don't approve of wind turbines, solar arrays currently don't make financial sense in most places unless they're subsidized by taxpayers ( a no-no to many), coal is an environmental disaster (I will believe in clean coal when coal executives are clamoring to live in the downwind plume from "clean" plants burning coal), nuclear power depends on hazardous mining of uranium, the waste from nukes has yet to be resolved, and so on.

Many environmentalists view dams as ecological catastrophes that should be torn down.

Ships burning bunker oil are creating an air-pollution calamity and should be banned.

Add all this up and the only acceptable sources of energy are existing hydroelectric dams, solar arrays and land-based oil wells which don't require pressurized water to extract the oil (as the pressurized water could pollute the water table, just like fraccing), and maybe existing nuclear power plants though many would choose to close these down.

That means the domestic energy supply would be 10% or less of demand/consumption. The rest would come from overseas or our North American neighbors, Canada and Mexico.

So it's OK for the fraccing to be done elsewhere, and for oil spills to ruin Nigeria, because we don't have to live with it. That's the classic definition of a colonial power: extract the resources from elsewhere, regardless of the damage to the local environment or people. The root assumption of this dependence on imports: Only the Imperial citizens matter.

Are we ready to face the consequences of closing down all environmentally damaging energy sources? That would require giving up 90% of our consumption. Are we ready to pay higher taxes or utility bills to subsidize solar power arrays? We still need backup capacity for nighttime consumption--where will that come from? Imported natural gas? From where?

If the present is any guide, we are happy to import that 90% of our energy from elsewhere, knowing full well there are few if any environmental restrictions in many of those exporting nations.

In other words, we want a perfect world: no potential "costs" to producing energy domestically, and also no significant reduction in our consumption of energy.

The "solution" we have chosen is to import the energy from elsewhere, leaving the damages and environmental costs to others, while leaving our own nation exquisitely vulnerable to distruption of energy supply chains and Peak Oil.

This is the same "solution" we've chosen for industry in general: close down the "dirty" domestic industries and import the goods from overseas. Even recycling plants are inherently "dirty"--there is no such thing as "clean" industry--there are trade-offs to be made at every step. So let's also stop recycling.

As a result of our childlike fantasies of "clean" living with no trade-offs, the states have fallen over themselves to offer film producers huge subsidies. Hollywood is a "clean" industry and everybody loves "clean" industries which fill office parks with white-collar workers and "information" businesses which pay lots of taxes.

Too bad the states didn't grasp that films are at best a $5 billion "industry" in a $14.7 trillion economy. The states improved the profitability of the film industry by offering dueling tax breaks, but they didn't really boost state revenues. It was all a foolish fantasy, attractive to adolescents who hoped to be seen with "movie stars."

Isn't this same desire for "clean" no-trade-off businesses one driver behind the financialization of the U.S. economy? It was all "clean" money-making: lower interest rates and jack up leverage and securitization, causing property values to skyrocket, which boosted consumer consumption of overseas-made imports (just unload on the dock and truck to Wal-Mart or the mall) and simultaneously increased the equity foundation for further financialized skimming and churn.

It was an adolescent fantasy: everyone could work shuffling electrons and paper in office parks and towers, making money by producing nothing. By speculating in housing, everyone could make money doing absolutely nothing but transferring pieces of paper and electronic entries.

But like any other adolescent fantasy, reality eventually intruded. The debts remained after the bubble, and even at 4.5%, a $500,000 mortgage requires hefty payments--as do the skyrocketing property taxes.

Corporations played the same game, too, of course: profits could be plumped up just by borrowing vast sums to buy competitors or to buy back stock, boosting the per-share earnings without having to actually produce more or work harder.

This is the fantasy world the U.S. continues to live in. Yes, fraccing is potentially hazardous; so are coal, oil, wind turbines, geothermal, hydroelectric and nuclear power. Those who are against each of these can make very strong cases, as can those who argue that subsidizing solar power at the expense of the taxpayers is misguided and a malinvestment made to benefit politically favored industries. (Needless to say, the fossil fuels industries have long had massive tax breaks and hidden subsidies paid for by other industries and taxpayers.)

Those of you who deal with children and teens probably know the "solution" to whiny demands: invite the kid/teen to solve the real issues and make the trade-offs themselves.

Nobody demands that of America as a nation. We want everything and we want it now, and we don't want to sacrifice anything to get it. Our solution is pathetically childlike:just borrow trillions of dollars every year to buy what we want, so no adult trade-offs are ever required. Just buy our energy from somewhere else so we don't have to make any sacrifices or balance competing demands.

We want to spend $700 billion on "defense," another $700 billion on Social Security, $600 billion on Medicare, $250 billion on interest on old debt, $350 billion for Medicaid, $567 billion on other entitlement transfers (pensions, Federal unemployment costs, etc.), etc., for a total of $3.7 trillion, while revenues may run about $2 trillion at best. The rest is borrowed.

States and local governments are borrowing billions more via bonds, and the shadow bailouts of the "too big to fail" banks are safely masked in the Federal Reserve balance sheet and accounting that's hidden "off budget." Those add up to trillions more that's being borrowed or printed.

We want abundant, cheap energy, and we want someone else to supply it to us so we don't have to make any difficult trade-offs. We want all our entitlements and we also don't want higher taxes. Isn't this the acme of childish fantasy?

When pressed about energy, we want to hide behind fantasies of fusion, or algae-based fuels, or some other technology which has been "10 years away" for the past 30 years or which is 20 years away from scaling up to industrial production, if ever. Our ignorance of the actual science is breathtaking, but we refuse to consider the possibility that breeder reactors and algae-based fuels may not pan out.

At some point, probably within the next 5-6 years, the oil exporters will stop shipping their hydrocarbons to us in sufficient quantities to meet our demands, and bond buyers will stop trading their capital for absurdly low rates of return on U.S. Treasury bonds.

Once it costs $1 trillion just to pay the interest on existing (and rapidly ballooning) debt, then we won't be able to borrow enough to fund the Empire and the Savior State and the interest. Trade-off time will finally be forced upon us.

At that point, the trade-offs will be much harsher than they would be now. But we don't want to make adult trade-offs; that makes us testy and pouty. Fortunately, Uncle Sam is indulgent; he can borrow trillions every year to give us everything we want--at least for now.

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